Does Your Insurance Have Your Back?

Homeowner’s insurance combines the home and the ranch, but it doesn’t cover farm animals, chemicals, employees and equipment; that’s where a farm policy comes in. Photo by Tyler Radke.

Insurance — it isn't fun to pay for, but in the event of a crisis, it's sure nice to have it.

While much of South Dakota received an abundance of rain in the summer of 2018 — a welcome reprieve from the previous year's drought — others dealt with the ramifications of hail and tornadoes damaging their homes, ranches and properties.

Its in those instances where having a solid insurance policy is critical. What does homeowner's insurance really cover though? When is additional coverage necessary? And what is the difference between homeowner's insurance and a farm policy?

We asked two experienced insurance agents on each side of the state these questions and more, and their answer will take the guesswork out of insurance shopping and determining which policy best suits the needs of the agricultural family.

For starters, what exactly does homeowner's insurance safeguard?

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"When you're looking at farm and home policies, the basics are essentially the same," said Amy Bailey, owner/agent of Starr Insurance in Custer, S.D. "Both cover for perils such as fire, wind, lightning and hail but never for rain or flooding. On broad or special policies, accidental charges of water can be covered like in the case of a washing machine or dishwasher breaking."

"You can buy business insurance if you have a business, but farming and ranching is unique in that insurance combines your home and your farming business into one policy," said Becky Moore, insurance agent at State Farm in Mitchell, S.D. "Your homeowner's insurance covers your home, any detached buildings that you choose to cover, your possessions, your loss of use (meaning extra costs you incur if the home is uninhabitable and you have to live somewhere else), and liability costs. Liability can help protect your finances by paying for covered damages which you are legally responsible for and also even your legal defense."

So what does homeowner's insurance not cover?

"There are items not covered by homeowner's or farm insurance such as flood, business-related activities, intentional injury, or damage caused by earthquake or mudslide," said Moore. "Additional coverage can be purchased for things like backup of a sewer, identity restoration or to cover valuables like jewelry, firearms, fine arts or laptop computers that are all risk policies – meaning they have more extensive coverage."

Additionally, policies for flood or earthquakes can be purchased separately as they are not covered by standard homeowner's insurance plans. However, in-home businesses such as a daycare can be covered under the homeowner's policy.

When is additional coverage necessary?

Cattle and tractors are not covered by homeowner's insurance, so that's where a farm policy is key.

"Of course, crop insurance is its own separate entity, but farm policies include liability for animals, chemicals and employees," said Bailey. "Producers can also add coverage for hay and farm equipment. Most farmers and ranchers won't insure old tractors or ATVs, especially if they never leave home. It's important to note that not all animals will be covered; only the ones listed on the policy. And in addition to the typical perils, wild animal attacks, drowning (except for animals under 30 days old), theft and electrocution are also covered."

For livestock and equipment, scheduled property coverage allows the policy holder to list, for example, a high-dollar bull or a specific piece of equipment. In most cases, insurance would cover at least 80% of the total value. Additional short-term mortality insurance can also be purchased at a cattle sale to protect the value of the animal during transportation after the point of purchase.

"While most farmers cover their equipment as there are loans and leases on this high-priced machinery, ranchers don't always insure livestock because of deductibles and prices and because coverage does't extend to sickness or all causes of loss," said Moore. "However, even if the producer doesn't cover the cattle themselves, farm liability is still covered on the farm policy. For example, if cattle were to get out and cause damage to a neighbor's crops, that would be covered. Remember, farm liability covers bodily injury or property damage for which the farmer is liable, and these instances can certainly arise from both livestock and equipment."

What type of documentation is needed when making a claim?

"Documentation isn't really needed to prove a fire or a tornado," said Bailey. It's always evidenced by the reported weather or the fire department. Typically, if the home is totaled, the insurance holder would get paid limit on that policy."

When making a claim, a representative typically comes to the property to determine the amount of loss to repair or build. In the case of partial losses such as hail damage to a roof, policy holders may be required to get an estimate from a contractor, although most companies will do their own estimates.

"You may be asked for documentation listing personal property that you have," said Moore. "While most companies don't require it, pictures are very helpful as it is difficult to remember all that you have when you start writing down the items lost in a large claim. If you have antiques, unique items, or highly valuable items it is especially helpful to have photos or descriptions so that the insurance company can make sure that you get paid a fair price for the value of the item."

How do I know if I've got enough coverage on my home and ranch, and what can I do to avoid becoming "insurance poor?"

"Everyone has different goals in their insurance and financial review," said Moore. "First, risks should be addressed – what are risks that should they occur could be most devastating? These would include things like car insurance, home/farm insurance, life insurance, health insurance, disability insurance. Can I take on some of the risk or should I use insurance for all of them? I recommend working with an insurance agent to help evaluate this. Next, what are goals that I have? That's where we look at savings and retirement products. And lastly, are there legacy needs that I have where I may do estate planning and more life planning?"

"Anyone can be insurance poor, but more often people are under-insured for the curveballs that life can throw at them," said Baiely. "You have to decide what has the most value and insure for that. Remember, value doesn’t always mean money. Can you still operate, for example, without your 20-year old combine? In the case of your old farm house, would you want to replace it or patch it up if it gets damaged? Keep in mind, today's prices cost way more to rebuild, buy or replace, but that's the double edge sword of being insurance poor. Most people 'self' insure to a degree; they tend to buy mortality policies on expensive bulls but not their cows."

A good example of this, Bailey says, is the Winter Storm Atlas. Many outside of agriculture felt no sympathy for the ranchers impacted by the freak October 2013 blizzard that swept across the region because they assumed insurance would cover the cattle killed in its wake; however, the reality is that most cattle weren't insured, and if they were, things like suffocating in the snow didn't fall under the insurance policy's list of perils.

How much should I expect to pay?

Bailey and Moore say the price will vary tremendously based on the amount of coverage purchased, location of the farm/ranch and home and the deductible and liability chosen.

"Price will also depend on how you qualify," said Moore. "Do you have good credit? Do you have claims or conversely qualify for a claim free discount? Do you have insurance with a company that offers a multiline discount because your cars are also insured there? Have you been with the company a long time giving you some tenure credit? Does your company give you a discount because you have a newer home or completely updated utilities? You also need to look at what you are buying. Some companies pay full replacement while others will pay actual cash value or may exclude some items like older roofs or vinyl siding, so their rates may be less but you may not have items covered."

Moore added, "People tend to look for the cheapest and not really look for the best bang for their buck. Evaluate the strength of the company you work with so you know they will be there at claim time and the actual coverage that you are buying, the people you will be working with, etc. There are always options you have for taking on some of the risk yourself to lessen the cost of insurance such as increasing deductibles."

Shopping for insurance, or tweaking current policies, may not be fun, but neither is lacking coverage in the event of a crisis. Ask tough questions and be willing to shop around to find the best coverage for the best price that fits with your budget.